Position Sizing
The practice of determining the optimal amount of capital to allocate to a single trade
What is Position Sizing?
Position sizing is the methodology used to determine how large a position to take in a particular trade. It's a crucial aspect of risk management that helps traders protect their capital while maximizing potential returns.
Key Concepts
Calculation Methods
- Percentage of capital
- Fixed risk amount
- Volatility-based sizing
- Kelly criterion
- Risk/reward ratios
Risk Considerations
- Account size
- Market volatility
- Trading leverage
- Stop loss distance
- Market liquidity
Common Approaches
Fixed Percentage Risk
- Risk 1-2% per trade
- Account balance based
- Adjusts for volatility
- Maintains consistency
Position Scaling
- Pyramiding into positions
- Scaling in/out
- Multiple targets
- Risk adjustment
Related Terms
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